Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Since important decisions on REIT management are made by the sponsor companies, governance isn't functioning. That's why REITs have been very careful to strengthen their compliance systems and information disclosure.</li>
<li>For REITs that rely heavily on properties contributed by their sponsors, it is unlikely that other investors would support an activist fund's advocacy for a change of asset manager.</li>
<li>The most annoying thing for the sponsor is the change of asset manager. The tactic of this TOB is to extract shareholder returns by addressing what the sponsor company dislike.</li>
</ul>


Since important decisions on REIT management are made by the sponsor companies, governance isn't functioning. That's why REITs have been very careful to strengthen their compliance systems and information disclosure.
For REITs that rely heavily on properties contributed by their sponsors, it is unlikely that other investors would support an activist fund's advocacy for a change of asset manager.
The most annoying thing for the sponsor is the change of asset manager. The tactic of this TOB is to extract shareholder returns by addressing what the sponsor company dislike.


This TOB Does Not Question the Fundamental Issue of REIT Governance, but Will the Tactic Succeed?

<ul>
<li>A drastic shift by the TSE to focus on quality without increasing the number of listed companies by reducing the number of IPO companies is not very promising.</li>
<li>TSE will raise the hurdle for listing maintenance criteria slightly, but it will ask companies to make a commitment to post-listing growth during the listing examination process.</li>
<li>It'll take time for quality of market to increase, and we expect that companies that are aware of listing costs with help from investors will naturally move to de-list themselves.</li>
</ul>


A drastic shift by the TSE to focus on quality without increasing the number of listed companies by reducing the number of IPO companies is not very promising.
TSE will raise the hurdle for listing maintenance criteria slightly, but it will ask companies to make a commitment to post-listing growth during the listing examination process.
It'll take time for quality of market to increase, and we expect that companies that are aware of listing costs with help from investors will naturally move to de-list themselves.


TSE Growth Market Reforms Also Expected to Be Effective in “Request”

<ul>
<li>When investing in a larger company, one can expect higher liquidity, higher expectations of endorsement of the activist investor's views because of the large institutional holdings, and smoother communication.</li>
<li>As cross-shareholding structures are beginning to break down, there're many opportunities for activist investors to attack such companies because they couldn't create value and grow due to underutilization of resources.</li>
<li>Activist investors have invested in Japanese companies in the past, but never with such success. This success is largely due to a change in the environment.</li>
</ul>


When investing in a larger company, one can expect higher liquidity, higher expectations of endorsement of the activist investor's views because of the large institutional holdings, and smoother communication.
As cross-shareholding structures are beginning to break down, there're many opportunities for activist investors to attack such companies because they couldn't create value and grow due to underutilization of resources.
Activist investors have invested in Japanese companies in the past, but never with such success. This success is largely due to a change in the environment.


"TSE's Request” Catalyzes and Attracts Activist Investors to Invest

<ul>
<li>The reorganization of Panasonic Holdings was far from restructuring its business portfolio, as it brought highly profitable subsidiaries and affiliates into the parent company while leaving low-profit businesses alone.</li>
<li>Although Panasonic's disclosure was successful as IR in instilling “expectations” in investors by showing targets, a possibility cannot be denied that it's temporary phenomenon that came at market turning point.</li>
<li>Now, 3 years after “TSE's request,” many investors are looking to improve profitability by restructuring their business portfolios, and will likely demand steady results year after year.</li>
</ul>


The reorganization of Panasonic Holdings was far from restructuring its business portfolio, as it brought highly profitable subsidiaries and affiliates into the parent company while leaving low-profit businesses alone.
Although Panasonic's disclosure was successful as IR in instilling “expectations” in investors by showing targets, a possibility cannot be denied that it's temporary phenomenon that came at market turning point.
Now, 3 years after “TSE's request,” many investors are looking to improve profitability by restructuring their business portfolios, and will likely demand steady results year after year.


Instilling Expectations Was Positive, but Interest Quickly Shifting from Seriousness to Performance

<ul>
<li>Even if a company goes private due to listing costs, it is good for investors to shift to a more share price-conscious management in order to maintain the listing.</li>
<li>Many companies want to take over management rights with the founding family, but find it not easy to continue as a publicly traded company and consider going private.</li>
<li>New problems lie ahead in the coming years between founding families who chose MBO to inherit the management control of “family business” and MBO funds who have to Exit.</li>
</ul>


Even if a company goes private due to listing costs, it is good for investors to shift to a more share price-conscious management in order to maintain the listing.
Many companies want to take over management rights with the founding family, but find it not easy to continue as a publicly traded company and consider going private.
New problems lie ahead in the coming years between founding families who chose MBO to inherit the management control of “family business” and MBO funds who have to Exit.


MBOs Will Rise, Even if Companies and Funds Are Sleeping in the Same Bed but Having Different Dreams

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

This TOB Does Not Question the Fundamental Issue of REIT Governance, but Will the Tactic Succeed?

I would like to discuss the issues on the February 20 Nikkei article, “Conflict of Interest Issues Left Unaddressed in REITs, Leading to Intrusion...

Metrical Inc

TSE Growth Market Reforms Also Expected to Be Effective in “Request”

I would like to discuss the issues on the issues in the “Future Responses in the Growth Market” document released by the TSE on February 18.

Metrical Inc

"TSE's Request” Catalyzes and Attracts Activist Investors to Invest

I would like to discuss the issues on the February 18 Nikkei article, “Activist Investors Target Ultra-Large Cap Stocks."

Metrical Inc

Instilling Expectations Was Positive, but Interest Quickly Shifting from Seriousness to Performance

I would like to discuss the issues on the February 14 Nikkei Newspaper article, “Panasonic shares show glimmer of light. P/E rises due to business...

Metrical Inc

MBOs Will Rise, Even if Companies and Funds Are Sleeping in the Same Bed but Having Different Dreams

I would like to discuss the issues on the January 23 Nikkei article, “Mizuho's 10 billion yen MBO fund to support growth of medium-sized companies.”

Metrical Inc